38 Studios is Working on a Game, Apparently, Afterall (Kingdoms of Amular)

[Bzalthek]

I have to agree.  But then, in corporate culture you rise largely based on who you know and which ass you kiss with a side of failing upwards.

[kildorn]

I think exec pay scales up way too quickly, but 250k doesn't really bother me. It seems pretty reasonable. The real issues are usually that executive pay/benefits are the last thing to ever get reduced if the company is fucking up. It's a role you can rarely actually "fail" at, and can happily drive a series of companies into the ground just to wind up more valuable because you have more experience now.

edit: Looks like confirmation on the mortgage thing came out over the weekend. They contracted out to a company that paid the mortgage while trying to sell the house. They stopped paying said company and promised them payment when their film tax credits came through (those things again. They seemed to be unable to do the math that even if they got these credits they'd already spend the money a few times over) and the company is on the hook for ~1.9m in mortgages it contractually owns. None of the employees should be getting payment requests however, it's all via 38's moving company contract. Wouldn't shock me if after missing a payment the banks tried to harass any sucker to just give them money though.

On the tax credits: aside from not being an RI company and thus not eligible, it also appears the credits are for the completion of a project and would only be available after their MMO shipped.

[Numtini]

None of the employees should be getting payment requests however, it's all via 38's moving company contract.

38 agreed to pay the mortgages, but they didn't actually rewrite them or buy the properties and they're broke. The employees are the ones on the hook. They have a claim against 38 of course, but so do a lot of people.

From various news reports, looks like the final tally is 180m owed, 12m on deposit with RI, and not a penny otherwise. And the Feds have joined the state investigating.

[satael]

http://www.gamasutra.com/view/news/172303/38_Studios_Spouse_speaks_out.php. A different take on the whole thing (though anonymous source is always a bit ...)

[Mrbloodworth]

6 month old moving bill, not paid.

Awesome.

[Soln]

And to add, Moorgard's "acceptance".

[Soln]

http://www.gamasutra.com/view/news/172303/38_Studios_Spouse_speaks_out.php. A different take on the whole thing (though anonymous source is always a bit ...)

Possible afraid of litigation?  I would be.

[Numtini]

That's just criminal. (And I'm hoping it literally is.) If they weren't paying the moving bills, they had to already know even when they recruited this poor guy that they were in fiscal trouble.

[Goumindong]

That's just criminal. (And I'm hoping it literally is.) If they weren't paying the moving bills, they had to already know even when they recruited this poor guy that they were in fiscal trouble.

It very likely could be. They entered into the contract in bad faith at the very least, knowing that they could not pay the moving bill and knowing that they inserted language that said the family was liable if the company could not pay. Which seems like fraud to me.

Its much more likely that the part in the contract about the family paying is illegal and/or non-binding. The contract basically says "we agree to pay for your moving expenses because we hired you and need you here but if we can't pay you have to"

Well one of the necessary things in a contract is "consideration". In this contract the consideration that the family gets is the payment for the move, and the consideration that 38 gets is the move itself. Without 38 paying for the move, the family has no consideration in the contract which makes the contract invalid.

[Rokal]

Article also says they hadn't been paying for health insurance for months and that's why it was finally being shut off in late May. In other words, they had plenty of warning that they were in trouble but naively believed that they could work things out so they didn't tell the employees. This was apparently the third (iirc) time 38 had come close to running out of money, and employees didn't hear about those other times either.

[HaemishM]

That's just criminal. (And I'm hoping it literally is.) If they weren't paying the moving bills, they had to already know even when they recruited this poor guy that they were in fiscal trouble.

That's the thing that's so fucking galling. This kind of colossal fuckup doesn't happen overnight. You see this kind of trainwreck coming from a mile away, unless your CFO is just NOT DOING ANYTHING. People in this company at the executive level had to have known that money was going to run out somewhere around X date. They had to have known all these bills and debts were outstanding. So why weren't the employees whose lives were going to be affected kept abreast? The 401k? THE FUCK? Moving bills not paid with contracts that stick the employees in small print? That's just fucked up, especially when compared with the health insurance premiums not being paid. I've gone through some similar shittiness with a previous boss (though thankfully not nearly as bad). At least I sort of knew it was happening. These folks got NO WARNING.

I seriously hope it is criminal, because it fucking ought to be.

[Numtini]

CFO not doing their job or being pushed not to do their job. One big question I'd love to know the answer to is who was running the company? I can't help but think Schilling, the wild card with no business experience or any sense of economic reality, was the one covering this over.

Anyone else note the hidden little tidbit in the spouse article about how the person quickly identified several business practice problems and was promptly reassigned?

[HaemishM]

I noticed her talking about the moving bill - when she asked why the company had been allowed to leave it unpaid for so long, she got something back about Schilling getting a special bit of leeway from the moving company.

[kildorn]

That's just criminal. (And I'm hoping it literally is.) If they weren't paying the moving bills, they had to already know even when they recruited this poor guy that they were in fiscal trouble.

That's the thing that's so fucking galling. This kind of colossal fuckup doesn't happen overnight. You see this kind of trainwreck coming from a mile away, unless your CFO is just NOT DOING ANYTHING. People in this company at the executive level had to have known that money was going to run out somewhere around X date. They had to have known all these bills and debts were outstanding. So why weren't the employees whose lives were going to be affected kept abreast? The 401k? THE FUCK? Moving bills not paid with contracts that stick the employees in small print? That's just fucked up, especially when compared with the health insurance premiums not being paid. I've gone through some similar shittiness with a previous boss (though thankfully not nearly as bad). At least I sort of knew it was happening. These folks got NO WARNING.

I seriously hope it is criminal, because it fucking ought to be.

They were also choosing to pay payroll and choosing which bills not to pay, so they were on a day to day basis knowing they couldn't afford to immediately pay bills well before this trouble hit the fan. The 8m film credits don't even look like they'd have brought their balance sheet remotely level on it's current debt, let alone actually let the company continue forward. This is management failure, plain and simple.

[Outlawedprod]

http://www.providencejournal.com/breaking-news/assets/docs/2012/38_Studios_Bankruptcy_Unsecured_Nonpriority_Creditors.pdf
http://www.providencejournal.com/breaking-news/assets/docs/2012/38_Studios_Schedule_1.pdf

[Severian]

The good news is that he's got a job now, so he's going to be OK.

Sorry, I should qualify, not the husband of "38 Studios Spouse", but Mr. Schilling. He's back on ESPN's Baseball Tonight as an analyst.

[Severian]

http://www.providencejournal.com/breaking-news/assets/docs/2012/38_Studios_Bankruptcy_Unsecured_Nonpriority_Creditors.pdf

38 Studios owed EA $116K ?

Here are some notable amounts owed to companies which will never get what 38 Studios owed them because Rhode Island gets first crack at anything.

Preservation Credit Fund - $11.5M
Office lease - full amount remaining on lease (some can be recouped if they get a new tenant) - $10.8M
R.A. Salvatore - $1.7M
Middlesex Bank - $1.5M
WRMM, LP. - $1.4M
Blue Cross - $715K
Par 4 Technology Group - $688K
Doug Macrea, Mentor Media - $585K
Oracle - $497K
William Thomas - $367K
Citizen's Bank Credit Card - $266K
Terremark - $264K
Move Trek Mobility - $225K
Atlas Van lines - $116K
Hypemia Hosting - $117K


TOTAL $32,624,641.02

http://www.providencejournal.com/breaking-news/assets/docs/2012/38_Studios_Schedule_1.pdf

Items of interest here include the listed assets:

Helios Platform IP and Development Tools reportedly worth $3.75M. However there is a note stating "Recent non-binding term sheet. Reports that company has hired the development team" which I have trouble interpreting.

Computer equipment worth $1.2M (net book value), Software worth $532K, furniture worth $500K (not to mention another $250K worth of leased furniture). That must be some furniture!

One registered patent: :"System and Method for Generating Targeted Newsletters" (pat. no. 8,137,197). There's another one pending for "Multiplayer Videogame Management System", but it is under the seven inventor's names.

[kildorn]

First: they were 700k behind in payments on medical insurance? What the SHIT?

Second: they owed Oracle 500k? What the shit? Oracle is expensive, but for a dev lab you don't need 500k of support contracts. And you really shouldn't be at the point of wanting a massively complex and expensive oracle yearly license if you're not anywhere fucking near release.

edit: they only have 1.2M in total computer equipment (desktops, servers, net gear, what have you) and put half a million of Oracle on it? What the hell, were they running RAC on a couple of desktops in a closet as a test lab?

[Hawkbit]

The good news is that he's got a job now, so he's going to be OK.

Sorry, I should qualify, not the husband of "38 Studios Spouse", but Mr. Schilling. He's back on ESPN's Baseball Tonight as an analyst.

WHEW!  Was worried there for a few.

[UnSub]

The above list of financial issues reminds me a lot of Ion Storm (and other dot com busts, for that matter). They got a lot of money / hype, spent up big on offices (information elsewhere indicates they may have signed a 10 year lease, and I'm pretty sure they did rent all of that 100k sq foot building), equipment, tools, etc. But then come the issues around no cash flow and no product yet ready to sell.

Yet 38 Studios kept hiring and burning cash, using new investment money to pay off old debts. That they got US$35m from EA for KOA:R, but it appears that didn't even touch the sides, says a lot. Plus the fact they almost couldn't afford payroll twice before the time they collapsed is a huge sign of how badly this company was being run. No cost controls.

[Kageru]

I'm not sure cost controls are the core problem. Once they'd committed to doing "Epic MMO!" as their first project their fate was probably set in stone. And the only options would be give up or keep going and hoping. Would have made a lot more sense to release smaller games and work up towards the dream MMO, but things look so easy when you are in the planning stage (spoken from experience, though not nearly on this scale).

[Severian]

edit: they only have 1.2M in total computer equipment (desktops, servers, net gear, what have you) and put half a million of Oracle on it? What the hell, were they running RAC on a couple of desktops in a closet as a test lab?

I should mention that I left out $785K of Leased Computer Equipment and $165K of Infrastructure Software from that same page.

I notice in between my first post and this one EDC added Schedule G to that Creditors PDF, which lists out all the contracts 38 Studios held (with dates but no dollar amounts) and identifies which ones were for Copernicus. One thing you can find there is that were using, or planned to use, middleware from: BigWorld, Donya Labs, Unreal Engine 3, Geomerics, Havok, Beast from Illuminate Labs, Speedtree, Localize Direct AB, Morpheme from Natural Motion, Bink, Scaleform, and Umbra. Also a contract for game testers from Volt Workforce Solutions of MA executed Aug. 12, 2011.

[Soln]

I totally remember when CS announced to the welrd about his newsletter back in 2006-7?  And they patented that?  Wow.

[Yoru]

One thing you can find there is that were using, or planned to use, middleware from: BigWorld, Donya Labs, Unreal Engine 3, Geomerics, Havok, Beast from Illuminate Labs, Speedtree, Localize Direct AB, Morpheme from Natural Motion, Bink, Scaleform, and Umbra. Also a contract for game testers from Volt Workforce Solutions of MA executed Aug. 12, 2011.

That's actually not entirely unreasonable. Using BigWorld as a backend for online games is relatively common, and using UE3 for the front-end and toolchain is also very common. A couple companies have tried to mate the two; I believe the only high-profile success was TOR.

As for the rest, UE3 comes pre-integrated with Scaleform. Simplygon (Donya Labs), Enlighten (Geomerics), Havok, Beast, Morpheme, Bink and Umbra all have very simple UE3 integration kits.

The only odd ducks I see are Geomerics' Enlighten and Illuminate's Beast; they're both real-time global illumination solutions - they simulate bounced light and whatnot. Using both would be weird. If you break the list out:

Simplygon - Level-of-detail and mesh optimization
Enlighten - Global illumination
Havok - Physics, duh
Beast - Global illumination
Speedtree - Foliage toolkit
Localize Direct - Localization support
Morpheme - Animation blending
Bink - Movie playback
Scaleform - Flash UI support
Umbra - Occlusion culling

It basically reads like they got a lot of people from AAA UE3-driven studios and licensed all the stuff they'd need to make a game with Call-of-Duty-level fidelity. The problem, of course, is that making a game at the top of the AAA-range of fidelity is insanely expensive. Adding "MMO" to that is some kind of insane stratospheric cost multiplier.

[IainC]

Yeah, most of that toolbox looks familiar to me as a UE3 developer. Like Yoru says, I imagine that they were using BigWorld for the backend as UE3 has native limits on concurrent connections so you can't do massively multiplayer on it without rolling your own network code.

[UnSub]

I'm not sure cost controls are the core problem. Once they'd committed to doing "Epic MMO!" as their first project their fate was probably set in stone.

Cost controls aren't the only factor, true, but it appears they burned at least US$100m to get to this particular smoking crater, and potentially needing another US$30 to US$40m to get to release stage. So how much did they expect they needed for Copernicus in the budget?

Because I don't see the decision to go EPIC MMO as something that was inevitably doomed, because they got the funding to pull it off. Instead, the money was spent on building a large staff in a big building and offering lots of cool benefits. I'd expect there would be some feature creep, but given that Copernicus was never really either detailed in terms of features or will see the light of day that's hard to tell.

And then there's the issue that even if Copernicus had got all the money it needed to launch, it's pretty unlikely it would have turned a profit for a long time to come.

[HaemishM]

The above list of financial issues reminds me a lot of Ion Storm (and other dot com busts, for that matter). They got a lot of money / hype, spent up big on offices (information elsewhere indicates they may have signed a 10 year lease, and I'm pretty sure they did rent all of that 100k sq foot building), equipment, tools, etc.

I think it's pretty standard to sign a 10-year lease on office space. It's what my company does. So about $1 million a year just for the offices? I can't judge whether that's expensive or not, but they probably could have gone cheaper.

Salvatore owed $1.7 million? I still cannot fucking fathom HOW they could pay that much for any writer, unless that's counting things like multiple tie-in novels, screenplays and other shit.

How can they OWE EA over $100k after a game that sold $1.2 million copies? They signed a shittastic contract, I'd say. There's only two explanations outside of embezzlement or fraud that this shit happened: 1) the entire executive team was in a coma yet signing checks with automatic writing, or 2) SHEER FUCKING INCOMPETENCE and willful irresponsibility.

[Kageru]

Much of that would become noise compared to wages.

The main thing is someone should have been able to look at the initial plan and been able to see they'd need a stupidly large amount of money and it would be a massive risk. And as such they should have either secured the money or cut down the scope before they started development for real. They either started off and the plan grew until they exhausted their funds or they just assumed they'd be able to get more funds later. But a managing director not willing to share the IP, not used to "not having enough money" and with boundless optimism and limited experience... it's easy enough to see how it could happen. And once you are committed it's really hard to admit you are screwed even if the maths says you are.

[Numtini]

Even for a AAA MMO, I can't fathom how much they have supposedly burned through. 150m, and if we believe Mr. Schilling (I don't), another 50m of his own money? And they need another 50m or 100m to finish? I just resubbed to Rift that supposedly had a 50m budget. It''s not perfect, but it's about the best out there.

They blew through between 2 and 3 times the same amount and they weren't anywhere near release? "Come on Dave, you must be doing something seriously wrong."

[Kageru]

It's pretty nuts... and would be fascinating to know what they did produce. If it's anything like vanguard a lovely engine, endless art assets and no game.

Maybe one day we'll see since I imagine they'll fire-sale the assets like APB did.

[Malakili]

I just resubbed to Rift that supposedly had a 50m budget. It''s not perfect, but it's about the best out there.

Trion seems to be about the only publisher out there with their head screwed on at this point.

[Severian]

Citizen's Bank is suing Schilling directly for $2.4M - he signed a personal guarantee on the loan to 38 Studios.

Boston Globe

The bulk of the debt owed to RBS Citizens is a $2.06 million line of credit established by 38 Studios in October 2010. In addition, 38 Studios had a business credit card account with a $375,596 balance as of June 7, according to court documents.

RBS Citizens also sued Morgan Stanley Smith Barney, where RBS Citizens believes Schilling has financial accounts.

The former Red Sox pitcher could be on the hook for other loans, too. Court documents indicate Schilling also personally guaranteed a $1.5 million line of credit from Middlesex Savings Bank of Natick. He also used his personal gold coin collection to help obtain a loan from Bank Rhode Island, a unit of Brookline Bancorp. in Brookline, for an unspecified amount, according to records.

In all, Schilling told the Providence Journal last month, he guaranteed $12 million in loans for the company, in addition to investing $38 million directly.

[UnSub]

I think it's pretty standard to sign a 10-year lease on office space. It's what my company does. So about $1 million a year just for the offices? I can't judge whether that's expensive or not, but they probably could have gone cheaper.

Based on articles I've seen, it was $21 / sq foot for about 100k sq ft, so I'm guessing around US$2.5m per year in rent.

And a lot of that would have been empty space for when they reached their target of 400+ people.

Unless they were sub-letting part of the building, or didn't have all of it. I haven't been able to verfiy if they had all six floors.

[Numtini]

Low 20s per square foot seems ok looking at a few real estate sites. There was an article in one of the local papers, I think the pro-jo, that indicated there may have been shenanigans in the renovation of the space. Apparently the contractor was a crony of the governors. But this is RI.

[Murgos]

I think it's pretty standard to sign a 10-year lease on office space. It's what my company does. So about $1 million a year just for the offices? I can't judge whether that's expensive or not, but they probably could have gone cheaper.

Salvatore owed $1.7 million? I still cannot fucking fathom HOW they could pay that much for any writer, unless that's counting things like multiple tie-in novels, screenplays and other shit.

How can they OWE EA over $100k after a game that sold $1.2 million copies? They signed a shittastic contract, I'd say. There's only two explanations outside of embezzlement or fraud that this shit happened: 1) the entire executive team was in a coma yet signing checks with automatic writing, or 2) SHEER FUCKING INCOMPETENCE and willful irresponsibility.

I wish you would stop.  You have no idea what you're talking about and just arbitrarily objecting to numbers with no idea where they come from or what justifies them and then raging about it.

It's puerile.